Problems with Federal Infrastructure

A new essay at Downsizing Government focuses on infrastructure investment. The essay discusses problems with federal infrastructure spending and the advantages of privatizing infrastructure to the full extent possible.

Unfortunately, the current administration's infrastructure policy has been mainly focused on increasing spending on misguided activities such as high-speed rail. But here are some of the problems with such a federal-led approach to infrastructure:

• Investment is misallocated. Federal investments are often based on political pork-barrel factors rather than actual marketplace demands. Amtrak investment, for example, has long been spread around to low-population areas where passenger rail makes little economic sense. Most of Amtrak’s financial losses come from long-distance routes through rural areas that account for only a small fraction of all riders. Every lawmaker wants an Amtrak route through their state, so investment gets misallocated away from where it is really needed, such as the Northeast corridor.
• Infrastructure is utilized inefficiently. Government infrastructure is often utilized inefficiently because supply and demand are not balanced by market prices. The vast water infrastructure operated by the Bureau of Reclamation, for example, greatly underprices irrigation water in western United States. The result is wasted resources, harm to the environment, and a looming water crisis in many areas in the West.
• Investment is mismanaged. Federal agencies don’t have the strong incentives that businesses do to ensure that infrastructure projects are constructed and operated efficiently. Federal highway, energy, airport, and air traffic control projects, for example, have often experienced large cost overruns. The Big Dig in Boston—which was two-thirds funded by the federal government—exploded in cost to five times the original estimate. And over much of the last century, the Army Corps of Engineers and the Bureau of Reclamation were known for spending on boondoggle projects, distorting their analyses, harming the environment, and spending on projects to further private interests rather than the general public interest.
• Mistakes are replicated across the nation. Perhaps the biggest problem with federal intervention in infrastructure is that when Washington makes mistakes it replicates them across the nation. High-rise public housing projects, for example, were a terrible idea that federal funding helped spread nationwide. Federal subsidies for light-rail projects have biased cities to opt for these expensive systems, even though they are generally less efficient and flexible than bus systems. High-speed rail represents another federal effort to induce the states to spend money on uneconomical infrastructure.
• Burdensome regulations. A final problem with federal infrastructure spending is that it usually comes part and parcel with piles of regulations. Federal Davis-Bacon labor rules, for example, raise the cost of building state and local infrastructure. In general, federal regulations impose one-size-fits-all solutions on the states even though the states may have diverse infrastructure needs.

Many policymakers are concerned that America have top-notch infrastructure to compete in the global economy. But the best way forward is for the federal government to cut subsidies and to devolve control over infrastructure to state and local governments. To meet demands for new infrastructure capacity, the states should innovate with privatization.

America's entrepreneurs are looking for new opportunities. So let’s give them a crack at improving the nation’s infrastructure by reducing federal subsidies and regulations that deter private investment in airports, highways, and many other facilities.

For more, see www.downsizinggovernment.org/infrastructure-investment.